Morgan Stanley: Tobacco Holding Its Own During Crisis

Living up to its reputation for recession resilience, the cigarette industry appears to offer a safe haven in the current uncertain business environment too.

Morgan Stanley analysts Pamela Kaufman and Christine Yang expect cigarette fundamentals to be relatively strong against the current challenging consumer and economic backdrop, reflecting consumer pantry loading, greater ease of smoking while at home and greater consumption from the anxiety brought on by the coronavirus pandemic.

Smoker behaviors and attitudes toward cigarettes do not appear to have been altered by the pandemic, according to Morgan Stanley’s weekly AlphaWise survey of 2,000 consumers.

Nonetheless, Kaufman and Yang expect Philip Morris International (PMI) and the Altria Group to reduce their 2020 guidance along with their first-quarter results

PMI must cope with unfavorable currency exchange rates and moderating IQOS growth in Italy and Russia while Altria must deal with a higher minimum age for tobacco purchases in the United States. While lower gasoline prices may boost cigarette purchases at gas stations, Altria also faces the prospect of consumer downtrading to less profitable cigarette brands due to high U.S. unemployment.